Resource Wealth Need No Longer Be a Curse

Submitted by James Bond
On Mon, 04/05/2010

Recently, my colleague Cara Santos Pianesi flagged an op-ed she thought might interest me. The aptly-titled op-ed, Resource wealth need no longer be a curse [1]was written by Mats Berdal and Nader Mousavizadeh and published in the FT on March 25th.

The op-ed notes a widely-shared premise: economic incentives that surround the hunt for natural resources fuel conflict and stunt social progress in the developing world.

For those of us in the ‘business’ of development, this charge needs to be thought about carefully. Few would argue that it hasn’t been—isn’t still—true. Our first-hand experience in poor, resource-rich countries is too often that of unfettered exploitation, pervasive corruption and grinding poverty. But let’s qualify the argument. There are examples where natural resources, managed well, have given a broad boost to national economies and livelihoods. Botswana and Chile are often cited as able avoiders of the resource curse. And of course, countries like Australia, Canada, Norway and the United States, all at one time were developing countries.

The opinion piece Cara pointed out addresses private sector involvement in post-conflict recovery, a topic dear to MIGA’s heart: One of our niches is precisely to foster such involvement. In fact, we plan to delve into the issue later this year with our World Investment and Political Risk report [2]on conflict.

So what I liked about the piece was the acknowledgement that “the caricature of no-strings-attached, no-questions-asked macro-finance does not describe the growing number of state-backed investors seeking long-term, commercially and politically viable relationships that depend on providing lasting benefits to both sides.”

This involvement involves long-term investment, substantial financing, painstaking due diligence. Complex? Yes. Risky? Very. This begs the question: how can we mitigate?

The global community is learning lessons, becoming better at identifying at-risk areas, treading with more care. MIGA’s work, in particular, is selling political risk insurance.[3] We do this to encourage foreign direct investment into the developing world. Bridges are built and power is turned on. Children can walk to school more easily, work can continue, incubators can run. Importantly, government capital is freed up for other pressing needs.

We work with investors in the extractive industry across the globe. But we also ask the important questions about the social and environmental impacts [4]of their work. We cover only those whose answers we’re comfortable with, those who understand it takes more than just a license to operate. Social and environmental impacts must also be tracked and dealt with to ensure they are mitigated and offset, and local communities must see benefits. Once the project is complete, we follow up to make sure their commitments are kept. It’s a profitable handshake we’re proud of.

So, to Berdal and Mousavizadeh’s point: unabashed cooperation with the private sector on issues surrounding natural resources needn’t be a curse. But I want to underline how much we need to work to make it a blessing.